Count Mother Nature squarely among the parties generating the loudest buzz, along with a hotelier in a new job and a one-time online bookseller.
Hurricanes Harvey and Irma
Mother Nature was not nice to restaurants in Texas and Florida this summer. Hurricane Harvey chewed a swath through the former, the industry’s second-largest state market and a hotbed in particular of chain development. Branches there of chains on Technomic’s Top 50 sales ranking suffered a 30% drop in transactions the week after the storm, the researcher found. Many places remained closed for those days, and consumers were housebound by the loss of their cars from flooding. Yet the recovery was relatively swift, with some operators reporting a "tailwind" because residents' homes were too damaged to cook.
The impact was less severe, but still dramatic, in Florida, where Irma made landfall roughly a week after Harvey struck. Operators say advance preparations by residents and governments alike tempered the impact, though restaurants still lost sales days.
The nonstop media frenzy over the president and his unorthodox ways could hardly be ignored by restaurants—in part because they contributed to it. Operators generated some of the headlines by suing the chief executive, arguing in the court of public opinion (not to mention the actual judge-and-gavel sort) that his stature pulled customers away from their restaurants and into the dining rooms of Trump-brand hotels. They demanded that the president either quit his job or give up his businesses.
Meanwhile, the industry avidly followed Trump’s efforts to lessen government’s burden on business. It cheered when the Department of Labor effectively hammered a stake through President Obama’s efforts to hike assistant managers’ pay. Ditto for the remaking of the National Labor Relations Board, No. 1 on franchise chains’ enemy lists during the prior administration. But it wasn’t too happy when the administration delayed enforcement of federal labeling laws by a year. Most of the effected chains had already spent the money to comply by that point.
Disruptors usually deliver one upheaval and then reap the benefits for a stretch. The e-commerce behemoth proved to be a serial upender, forging new business models and confronting the restaurant industry with arguably the top mystery of 2017.
The industry would have regarded Amazon’s role in making delivery a prime channel to be disruptive enough. But the company also stepped out of the virtual world to rock convention with Amazon Go, a new restaurant/c-store hybrid that allowed customers to grab whatever they wanted and simply leave.
And then came the deal that shook the world: the acquisition of Whole Foods Market. The industry is still trying to figure out how the combination will change the share-of-stomach battle, but the handicapping has yet to reveal a beneficial turn for restaurants.
Who’d have believed the engaging media and restaurant star would emerge as the industry pariah of 2017? The damnable behaviors alleged after an eight-month newspaper investigation ensured “and restaurants” would be tacked onto reports that sexual harassment was an epidemic in entertainment and the media. Besh was portrayed in the story as fostering a culture in his New Orleans restaurant empire that encouraged the exploitation of female employees, as well as acting inappropriately himself. Besh didn’t deny having an affair, though he portrayed the dalliance as being consensual. Still, it cost him the leadership of the company that bears his name.
Buffalo Wild Wings
The saga of the wings and beer chain was more engaging at times than the sports programming airing on its flat-screen TVs. First, there was an activist investor who loudly read its lengthy list of demands, including a change in management, expansion strategy, spending and structure. Then came the high-drama shareholders meeting, where CEO Sally Smith dropped the bombshell that she would retire.
Next, there was the reversal on a successful new promotion, a deep discount on wings every Tuesday evening. The traffic builder was so successful that margins were crushed when wings failed to fall in price as they normally do every year after the NCAA basketball playoffs.
And the piece de resistance: the $2.9 billion sale of the company to Roark, which announced plans to merge the casual brand into its Arby’s subsidiary.
The final price for Buffalo Wild Wings—the second biggest restaurant deal of the year—was chump change compared to the $7.5 billion that was paid a few months earlier for Panera Bread Co. That one left many chain executives marveling at the price—about 17 times operating income—and wondering, What’s with the buyer, JAB Holding?
The company had first come to notice a year earlier with the $1.35 billion acquisition of Krispy Kreme. Now it was setting a new purchase record and hiking multiples across the board. Yet little was known about the concern, other than it had a penchant for companies that sell coffee and other breakfast staples.
And JAB wasn’t even done with its acquisition tear. The ink was still drying on the Panera deal when the Austrian holding company announced it was buying Bruegger’s Bagels. The acquisition of Au Bon Pain, a former sister of Panera, would follow a few months later.
What sounded like science fiction a year earlier became a very real frontier for restaurants in 2017. Suddenly, with car manufacturers announcing they were zooming into the field, chains had to consider how the business was likely to change if driving was rendered obsolete. After all, cars were a catalyst of the modern restaurant industry. How would the nation’s eating and drinking habits change with that factor fundamentally altered?
Amid the blizzard of speculation, Domino’s began a test of autonomous delivery vehicles in partnership with Ford. Domino’s CEO Patrick Doyle identified the driverless future as a major exploration for the chain—near-term.
For a short stretch during Donald Trump’s transition into the presidency, the restaurant industry appeared to be getting an advocate inside the White House—at the cabinet level, no less. Andy Puzder, CEO of the company that runs the Carl’s Jr. and Hardee’s quick-service burger chains, was the new president’s choice to become the next secretary of labor. Puzder readied himself by getting set to sever all ties with CKE Restaurants, including his position as chief.
The situation didn’t last for as long as most LTOs do. Under fire from organized labor for flippantly noting robots’ advantages over human workers, and drawing heat for how he acted in a messy divorce years earlier, Puzder asked that his nomination for the government post be withdrawn.
By that time, his successor as CEO of CKE had already been named.